Solicitors should wake up to the widespread market practice of capping liability for negligence on big transactions or they will be exposed as prime targets for lawsuits, lawyers warned this week.

Solicitors are permitted to cap their liability by agreement with clients - subject to the Unfair Contract Terms Act 1977 - so long as they retain the 1 million Law Society indemnity minimum.

Jane Howard, a partner at City-based indemnity specialist firm Reynolds Porter Chamberlain, said: 'Accountants have been doing it routinely for the last five years or so [in relation to non-audit work] and solicitors are missing a trick.'

She added: 'There is a need [within the profession] to wake up to liability-capping, particularly in mergers and acquisitions work, where the potential liability is high.'

She said that firms should consider caps on an individual basis, rather than forming a 'price-fixing cartel' imposing such caps.

She added: 'The danger is that if everyone else has sewn up their pockets, the lawyers will be the only ones left with deep pockets to dig into.'

Ms Howard's warning came as her firm called on the government to permit accountants to cap their liability for audit work to 500 million in its response to a Department of Trade & Industry consultation on director and auditor liability.

John Trotter, a dispute resolution partner with City firm Lovells, said: 'There are reasons why solicitors involved in big transactions should want to limit their liability, but it's a question of whether clients would be prepared to accept that.

It is certainly right that accountants and others have been capping or trying to cap their liability for some years.'

He said there are many good firms and that clients faced with a choice of solicitors who wish to cap their liability by contract, and those who do not, are likely to opt for the latter in the present market.

Trevor Moss, executive director at broker Alexander Forbes, said: 'One of the dangers is for lawyers working with other professional firms on a huge transaction for which they are joint and severally liable.

All of a sudden it could be the lawyer who an aggrieved party pursues for negligence because it is the only party that has not capped its liability.'

See feature, [2004] Gazette, 18 March, page 20

Jeremy Fleming